It has been tough be an investor of Sierra Wireless, Inc. (USA) (SWIR) for the past year, give or take.
SWIR shares are currently a whopping 75% below their late-2014 peak, with the latest portion of that pullback materializing earlier this month following Q4’s report.
Specifically, SWIR stock fell another 26% on Feb. 5 following last quarter’s earnings announcement, and though it’s marginally higher from its post-earnings low, it’s still deep in the red, and still in a downtrend.
And yet, to forward-thinking investors who can look more than a few months down the road, Sierra Wireless presents an interesting — albeit speculative — opportunity.
What Exactly Is Sierra Wireless?
Most investors have at least heard of Sierra Wireless, though most investors still struggle to explain exactly what Sierra Wireless does.
In simplest terms, Sierra makes the hardware necessary to wirelessly connect equipment to a controller (human or automated) and operate that equipment remotely. Examples include the monitoring of a train’s location on a track to redirect traffic as needed, the remote “reading” of electricity power-usage meters and patient monitoring by healthcare workers … just to name a few.
The technology has a more familiar name — the Internet of Things, or IoT, for short.
It’s no small opportunity. Former Cisco Systems, Inc. (CSCO) John Chambers has repeatedly remarked that IoT is a market that will eventually be worth $19 trillion and will interconnect 25 billion devices.
His outlook more than slightly overstates how much money will be spent actually deploying Internet of Things hardware, but he wasn’t wrong to suggest billions of devices will eventually be linked to one giant web. That inherently makes a sizable market for the companies that design and sell such hardware.
Sierra Wireless is one of those names — and arguably, one of the better ones.
The Problem Is …
A clever idea is one thing. Turning a clever idea into a viable business is another. The world loves the idea of the IoT, but that doesn’t inherently mean the world is ready for the IoT itself.
It’s a reality that ended up haunting SWIR investors on Feb. 4. That’s when Sierra Wireless reported an operating profit of eight cents per share on revenue of $144.8 million. Problem: The pros were looking for a bottom line of 10 cents per share of SWIR and revenue of $149.9 million. Never even mind the fact that sales and earnings both fell — a lot — compared to year-ago levels.
The company attributed the shortcoming to a broad economic headwind, and it’s a plausible explanation; tech-sector peer and indirect rival Cisco also acknowledged economic uncertainty was presenting a challenge.
Yet, Sierra Wireless has now posted four straight quarters of year-over-year earnings declines, and those lulls started to materialize before any macro headwind did. It’s more plausible that adoption of Internet of Things technologies isn’t proceeding at the initially expected pace.
If that’s the case (and TEKsystems has pretty much said it is), then it could be a long while before SWIR shareholders actually see any truly impressive performance from the company.
Bottom Line for SWIR Stock
In retrospect, it can’t be entirely surprising SWIR and other Internet of Things names struggling — most new technologies have been run through the same wringer.
That is, a new idea drives stocks higher based on a mere premise, then disappointing results drive those related stocks lower again, and finally when the product AND the market are ready to move forward together, success is achieved and those stocks start to move higher again … this time for good. Solar power, 3D printers, genome sequencing and rare earth metals are just a few of the industries with stocks that have been through the boom-then-bust cycle. All of them are now viable, or are en route to viability.
Sierra Wireless and other Internet of Things stocks look destined to follow the same path.
The good news is, we’re at least pretty well into the bust phase.
As for when the IoT business will finally make fiscal sense, nobody has a crystal ball. The aforementioned TEKsystems report on the adoption of IoT served up some pretty telling statistics, however. It noted that of the IT businesses it asked, only about 42% of them were in early talks regarding the implementation of IoT technologies, and only 17% had deployed actual IoT technologies.
That’s a start, but it’s not much. It could be a while before the business of IoT is really humming for technology suppliers.
Nevertheless, SWIR remains one of the better plays for when that time comes.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.